Washington Tries to Play Rich Uncle Sam on Taxpayers’ Backs

In 2007, Congress halved the federal student loan rate to 3.4 percent but triggered the rates to increase to 6.8 in 2012. Now, Washington policymakers are debating whether or not to extend the 3.4 percent rate and hand the $6 billion “tuition” bill on to taxpayers.

Despite claims by President Obama on his tour of college campuses this week that keeping the loan rate artificially low is critical to keeping college affordable, the numbers suggest otherwise, as Douglas Holz-Eakin, former head of the Congressional Budget Office, points out on National Review Online.

Keeping the rates at 3.4 percent, he explains, would reduce monthly student loan payments, on average, by only $7. Plus, the lower rate applies only to new borrowers and those students who receive federally funded Stafford loans.

But despite providing little help to students, the proposal carries a significant price tag for taxpayers. The $6 billion cost will be borne by all Americans, even the nearly three-quarters of taxpayers who don’t hold a college degree. As John Stossel points out, “Only 30 percent of Americans have a college degree. People with degrees are relatively elite. Government shouldn’t force the remaining 70 percent to subsidize them.”

The 70 percent are subsidizing federal student loans that go out to millions of students without regard to risk (whether or not they can handle college-level work). Plus, those loans are offered at rates far below what private lenders would offer, since private lenders can’t pass on the risk to taxpayers like the federal government does. Higher education scholar Neal McCluskey points out that easy access to low-interest loans hasn’t helped increase college affordability:

First and foremost, all the cheap aid has enabled colleges to raise their prices at breakneck speeds, rendering the aid largely self-defeating and college pricing insane.

Second, giving dirt-cheap ducats to wannabe students—no matter how poorly prepared they are, or how little they actually want to tackle college work—has resulted in massive overconsumption and noncompletion of postsecondary education, and left millions without the earnings-upping degrees they need to pay their college debts.… Finally, there’s the cost to taxpayers. Overall, federal student loans originated in just 2010-11 involved $104 billion in taxpayer money, and if those loans don’t get paid back, or interest rates are slashed, it is taxpayers who will take the hit.

The current student loan interest rate debacle has been preceded by massive increases federal involvement in higher education over the decades. But since President Obama came to office, he has significantly increased Washington’s reach on college campuses by:

Further federalizing student lending with the Student Aid and Fiscal Responsibility Act, which was buried in Obamacare;

Capping what lenders can require students to pay each month;

Completely “forgiving” student loans after 20 years on the backs of taxpayers; and

Putting into place policies that are hostile toward for-profit, online higher education institutions, such as requiring online provides to receive accreditation in all states in which they operate.

These government policies, however, will fail to drive down college costs in the long run. To tackle the rising costs of higher education, we need savings-based rather than debt-based college financing. Policymakers should also allow the free market to work to reduce college costs by, for example, creating better environments for online learning to flourish. Additionally, the federal government needs to stop increasing federal subsidies for higher education, which only incentivizes colleges to raise their tuition rates.

Policy should promote these types of cost-efficient approaches rather than expensive Washington plans that leave taxpayers footing the bill. That would be a win-win for all Americans.

The Daily Signal depends on the support of readers like you. Donate now

I agree with your feeling that "we serve them." Obama's government isn't doing a thing for us but using their executive order to take more from us. Obama was clear when he said "we all have to sacrifice." Clearly a lie since he protects those who cause costly consequences Obama puts on our shoulders to pay for. The Obama governments' only services are to those they favor and with America's money. You don't hear them complaining…

This is a bad argument to get into as conservatives. It's a loan program, so its actual payout is the total loaned minus total repaid. The intent is a righteous cause and is a powerful tool to get mobility from poverty and middle-class moving to upper class.

It's not a direct payment so institutions still have to compete for the students choice of where these monies get spent.

Considering the Fed is loaning money at lower then 2% rates it seems odd we as taxpayers would use this type of program to make a profit from and have a rate anything higher then the Fed lending rate.

Tackling issues with the rising costs of college vs trained students exiting and finding work capable of paying off the loans seems to me to point towards having a requirement on what degree is sought to qualify for these types of loans. But that is not the same as limiting the amount of loans available.

There are many issues with the educational system as well with budget concerns that need addressed that will go further in tackling these issues, but I for one fail to see how finding systemic means to lift people out of their poverty situation through empowerment rather than handouts could be considered a bad use of societies funds.

Arguments on if this is better left to the states or the federal govt. is not my point here, I merely am pointing out that as a means for which to achieve mobility goals without handouts or overly taxing burdens on the upper class, this program seems to fit that role.

"The $6 billion cost will be borne by all Americans, even the nearly three-quarters of taxpayers who don’t hold a college degree."

Not really, the Obama proposal pays for the policy by eliminating an existing tax break for S corporations, which avoid corporate taxes by passing corporate income, losses, deductions and credit through to their shareholders. Shareholders of such companies currently pay taxes on company revenues as personal income.

Countries that have the highest standard of living and longest lifespans in the entire world ( like Norway and Switzerland) provide free education. Realizing that a highly educated citizenry will more than compensate the investment in their education when they enter the job economy. In fact, you can easily measure the lowering of the standard of living in America with the lowering standards and creation of economic obstacles to education in the last 30 to 40 years ( real wages have been frozen since the 1960's and the ability for an educated workforce to negotiate, democratically in the work arena, has been strangled due to the deliberate smothering of Unions). While the more realistic and successful countries are investing in their future, the privatization of loan programs, in the U.S., is forcing our brightest into involuntary servitude.

Don’t have time to read the Washington Post or New York Times? Then get The Morning Bell, an early morning edition of the day’s most important political news, conservative commentary and original reporting from a team committed to following the truth no matter where it leads.

Email address

Ever feel like the only difference between the New York Times and Washington Post is the name? We do. Try the Morning Bell and get the day’s most important news and commentary from a team committed to the truth in formats that respect your time…and your intelligence.